Budgeting, saving and understanding credit are great benchmarks for financial literacy. There is another important metric that many people fail to calculate and track: net worth. This calculation can be immensely helpful and insightful for you and your personal finances. Here are the steps you need to calculate net worth.
How to Calculate Net Worth
Net worth is the total value of your assets minus the value of your liabilities. Therefore, the first step is to list out all of your assets. Use this Net Worth Worksheet to help. Assets include everything from cash, jewelry, furniture, the resale value of cars, savings and investments. Liabilities include any debts- mortgages, student loans, car loans, medical bills, taxes etc…
Calculate Net Worth Example
Let’s calculate net worth with this example of someone who has several assets as well as several liabilities.
- $4,000 value of car
- $6,000 in furniture
- $20,000 investments
- $2,000 jewelry
- $10,000 cash and savings
- $105,000 mortgage
- $5,500 student loan debt
- $1,500 credit card debt
In the example above, the person actually has a negative net worth of -$80,000. It’s okay to have a negative net worth, especially for younger adults or couples. As the mortgage and student loan debt goes down, the savings goes up, and the net worth will start to become a positive number. Keep in mind that not all debt is bad. Good debt includes student loans and mortgages; they are seen as investments.
Tracking your net worth over time can help you achieve your financial goals. To get to a positive net worth, your goals might focus on paying off credit card debt, waiting to buy a home until you have saved more, or paying off a car loan early. Use your net worth as a tool in your financial planning.
For more information on net worth and managing your finances, call American Consumer Credit Counseling today at 800-769-3571 to speak with a certified credit counselor.